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    Quiz I Solution

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    Dinika
    The document appears to be a 20 minute quiz for a portfolio management and security analysis course. It contains 13 multiple choice questions testing concepts like the expected return of zero-beta securities, factors that improve the current ratio, characteristics of bonds selling at a premium or discount, the return of a security with a beta of one, the relative riskiness of different types of debt instruments, how diversification affects risk, the relationships between market value, book value and par value of stocks, the meaning of a stock's beta value, types of investment risk, measures of risk adjusted return, and the relationship between required return, actual return and the relative market and book values of a stock's equity.

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    Quiz I Solution

    Uploaded by

    Dinika
    37 views2 pages
    The document appears to be a 20 minute quiz for a portfolio management and security analysis course. It contains 13 multiple choice questions testing concepts like the expected return of zero-beta securities, factors that improve the current ratio, characteristics of bonds selling at a premium or discount, the return of a security with a beta of one, the relative riskiness of different types of debt instruments, how diversification affects risk, the relationships between market value, book value and par value of stocks, the meaning of a stock's beta value, types of investment risk, measures of risk adjusted return, and the relationship between required return, actual return and the relative market and book values of a stock's equity.

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    finance

    Original Title

    Quiz I Solution (1)

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    The document appears to be a 20 minute quiz for a portfolio management and security analysis course. It contains 13 multiple choice questions testing concepts like the expected return of zero-beta securities, factors that improve the current ratio, characteristics of bonds selling at a premium or discount, the return of a security with a beta of one, the relative riskiness of different types of debt instruments, how diversification affects risk, the relationships between market value, book value and par value of stocks, the meaning of a stock's beta value, types of investment risk, measures of risk adjusted return, and the relationship between required return, actual return and the relative market and book values of a stock's equity.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    37 views2 pages

    Quiz I Solution

    Uploaded by

    Dinika
    The document appears to be a 20 minute quiz for a portfolio management and security analysis course. It contains 13 multiple choice questions testing concepts like the expected return of zero-beta securities, factors that improve the current ratio, characteristics of bonds selling at a premium or discount, the return of a security with a beta of one, the relative riskiness of different types of debt instruments, how diversification affects risk, the relationships between market value, book value and par value of stocks, the meaning of a stock's beta value, types of investment risk, measures of risk adjusted return, and the relationship between required return, actual return and the relative market and book values of a stock's equity.

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    © All Rights Reserved
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    of 2

    Ace Institute of Management

    MBAe, Portfolio Management and Security Analysis


    Quiz

    Time: 20 mins

    1. What is the expected return of a zero-beta security?


    a) Market Return
    b) Risk free rate of return
    c) Market return minus Risk free return
    d) Market return plus risk free return
    e) None of the above

    2. Which of the following would NOT improve the current ratio?


    a) Borrow short term to finance a additional fixed asses
    b) Issue Long Term debt to buy inventory
    c) Sell common stock to reduce current liabilities
    a) Sell fixed assets to reduce accounts payable

    3. If a bond sells at a high premium, then which of the following relationships hold true? (P 0 represents the price of a
    bond and YTM is the bond's yield to maturity.)
    a) P0 < par and YTM > the coupon rate.
    b) P0 > par and YTM > the coupon rate.
    c) P0 > par and YTM < the coupon rate.
    d) P0 < par and YTM < the coupon rate

    4. What is the return of the security with beta equal to one ?


    a) Market Return
    b) Risk free rate of return
    c) Market return minus Risk free return
    d) Market return plus risk free return
    e) None of the above

    5. Which one is more secured in terms of default risk?


    a) Treasury Bill
    b) Government Bond
    c) Corporate Bond
    d) Commercial Paper

    6. The distribution of rates of return for securities X and Y are given below:
    State of the Probability of
    Economy Occurrence X Y
    Boom 0.20 10% –10%
    Normal 0.60 5% 5%
    Recession 0.20 0% 50%

    We can conclude from the above information that security X will reduce the riskiness of a well-diversified
    portfolio more than security Y
    a)True
    b) False

    PMSA - AIM Page 1


    7. For any given stock, which of the following must be true ?
    a) Market value  book value  par value
    b) Book value  market value  par value
    c) Par value  market value  book value
    d) Par value = book value  market value
    e) None of the above must be true

    8. An "aggressive" common stock would have a "beta"


    a) equal to zero.
    b) greater than one.
    c) equal to one.
    d) less than one.

    9. This type of risk is avoidable through proper diversification.


    a) portfolio risk
    b) systematic risk
    c) unsystematic risk
    d) total risk

    10. A measure of "risk per unit of expected return."


    a) standard deviation
    b) coefficient of variation
    c) correlation coefficient
    d) beta

    11. The greater the beta, the ______ of the security involved. (fill up the gap with correct option)
    a) greater the unavoidable risk
    b) greater the avoidable risk
    c) less the unavoidable risk
    d) less the avoidable risk

    12. A share with a higher than the average rate of return for the same risk is…?

    a) Undervalued
    b) Overvalued
    c) Valued correctly

    13. Shareholders require a return of 12%. Actual return on equity is 13%. What is the relation between market
    and book values of equity?

    a) Market value < book value


    b) Market value > book value
    c) Market value = book value

    PMSA - AIM Page 2

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